An insurance policy is a contract between an insurance company and an individual. In the contract, the company agrees to compensate the individual for financial losses that may arise due to the specific events. To enjoy the coverage, the individual will have to pay a premium for a specific period of time. Insurance is considered the best risk mitigation method.
When you buy insurance to handle the risk of death, it is known as life insurance. There are other products that cover all the assets valuable to you. Motor insurance , home insurance, travel insurance, health insurance, business insurance and fire insurance are some of them.
To increase the appeal of life and health insurance coverages, the government has allowed tax deductions on the premium amount you pay. Let us understand what are the tax benefits on insurance.
Tax deduction under Section 80C
The amount of premium paid on the life insurance policy -- term insurance, money back policy, whole life, endowment, and unit-inked insurance plans included-- will qualify for a tax deduction under Section 80C of the Income Tax Act, 1961. An amount up to Rs. 1.50 lakh paid towards insurance premium is deducted from tax liability.
Premium paid for insuring self, spouse, children, and any member of the Hindu Undivided Family is eligible for tax deduction. A key point here is that if the policy is issued before the March 31, 2012, the annual premium up to a maximum of 20% of the sum assured will be allowed as a deduction from tax liability. For all the policies issued after April 1, 2021, an annual premium up to a maximum of 10% of the sum assured will be tax-deductible. All tax benefits on premium paid on life insurance are capped at Rs 1.5 lakh a year.
Tax deduction under Section 80CCC
Under Section 80CCC of the Income Tax Act, 1961 you can claim tax benefits in India for any amount you pay towards the annuity plan of Life Insurance Corporation of India or any other insurance company. However, the payment should be made towards the annuity plan only and the maximum you can claim is Rs 1.50 lakh only.
Tax deduction under Section 10(10D)
Under Section 10(10D) of the Income Tax Act, you will get a tax exemption on the amount you receive from the insurance company. This includes the sum assured and the bonus received on surrender or maturity of the policy. It also includes the surrender of the policy in the event of the death of the insured.
Tax benefits of health insurance
A health insurance policy covers the cost of surgical and medical expenses in the event of illness, hospitalisation, or accident.
Tax deduction under Section 80D
You can claim a deduction from tax under Section 80D for the premium amount paid towards the health insurance policy. The total deduction for the premium paid for self and family is Rs 25,000. The deduction for the premium paid for self and family including your parents is Rs 50,000. Further, the deduction for premium paid towards self and family including senior citizen parents is Rs 75,000 and the deduction for premium paid towards senior citizen self and senior citizen parents is Rs 1,00,000.
Additionally, you can claim a deduction of up to Rs 5,000 for the expenses you incur on the medical checkup or preventive health checkup. You can also claim a tax deduction for the amount paid towards critical illness policies and insurance riders.
Things to keep in mind
You can make the premium payment in cash but you will only be able to avail of the tax benefits if you have paid through internet banking, cheque, credit card, or draft. If the cash payment is made for a preventive health checkup, it is eligible for a deduction under Section 80D. To claim a deduction under Section 80C, you need to ensure that the premium paid in the year does not exceed 10% of the sum assured. Even if it does, the benefits you can claim will be limited to 10% of the sum assured.
The tax deduction can only be claimed for the years you have paid the premiums.
Keep these tax benefits of insurance in mind when you buy life insurance or health insurance. It will reduce your tax liability significantly and will serve dual purposes- tax savings and protection.
Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.